Race hots up for the big betting prize
William Hill fights off £3.4bn bid – but rivals are circling as merger frenzy grips leading bookmakers
MERGER fever is gripping the betting industry as rumours circulate the City of yet another suitor for William Hill, Britain’s biggest bookmaker.
Having just successfully seen off an audacious £3.4 billion joint bid by Grosvenor Casinos and Mecca Bingo owner Rank Group and online betting company 888, William Hill chairman Gareth Davis might prefer to focus his attention on finding a permanent replacement for former chief executive James Henderson. He was ousted last month after two years at the helm and 31 years at the company.
But Davis and his interim chief executive, former chief financial officer Philip Bowcock, could find themselves having to fend off yet another takeover bid – this time from private equity giant CVC Capital Partners.
Speculation continues to circulate that CVC, the owner of UK-based online betting company Skybet, is considering launching its own bid for the 82-year-old company.
Adding William Hill to its portfolio would make sense to many, not least those with a sense of history. One industry insider said: ‘After all, CVC originally floated William Hill on the stock market back in 2002.’
And CVC has a keen interest in the gambling sector. Not only did it recently snap up a majority stake in leading German sports betting company Tipico but just a month later, in May, it bought Italian gaming and payments operator Sisal Group.
CVC declined to comment last night and it might be private equity rivals which are also running the numbers on William Hill, or other betting companies could show their hand first. But consolidation fever continues to grip the industry.
Publicity stunt-loving Irish bookmaker Paddy Power tied up with betting exchange Betfair in February – just days after FoxyBingo owner Bwin.party finally sealed the deal on its £1.1billion takeover by Sportingbet owner GVC. This followed a protracted battle with 888, which had also tried to take over Bwin.party.
And William Hill itself, under the recently departed Henderson, tried – and failed – to buy 888 in early 2015.
Life has not been easy for William Hill. Not only did teething troubles with its new technology platform hit the company last year, it also had to issue a profits warning after ‘the worst Cheltenham results in recent history’ for bookmakers hit its gross win margins.
But while William Hill is still going it alone for now, its two nearest betting shop rivals Ladbrokes and Coral have combined and will shortly overtake it to become Britain’s largest bookie, on completion of their £2.3billion merger.
The combined company has to dispose of 400 high street shops to meet competition requirements, which means that yet another rival, possibly Paddy Power or Betfred, will be able to add to its estate.
So why the merger fever? An industry source said last week: ‘Unlike other new industries, where a leading player emerged very quickly early on and dominated the market, along the lines of an Amazon or an eBay, in the betting arena there was so much confusion over the legality of online gambling, and taxes and regulation, that dozens of companies sprang up virtually overnight as gambling entrepreneurs decided to take their chances.’
However, the enormous marketing and technology costs and manpower requirements to succeed in such a competitive field have forced companies to enter into mergers just to survive, said the source. ‘Betting technology is extremely complex these days – allowing people free bets and inplay betting, giving incentives. All those things take resources and that’s before you even think about the huge costs of battling for new customers and the massive marketing spend which accounts for all those betting adverts on TV,’ added the insider.
The failure of the Rank/888 takeover bid wasn’t much of a surprise, said gambling analyst Gavin Kelleher. ‘There were merits to the deal but it was also very complex, would have required significant debt, and the board was not willing to engage,’ he said.
‘There is still a lot of potential corporate activity in the sector, with companies having to decide whether to get involved or not.
‘Scale has become more important and the three recent large-scale mergers have certainly been well received by the market.’
And bookmakers who run betting shops face another challenge – from the long-awaited review of stakes and prizes.
Bookmakers are under pressure to reduce the £100 maximum stake on the controversial B2 betting machines, even though players must now register first before staking more than £50 per spin or load cash on the machines at the counter.
But MPs and local authorities are demanding the stakes be cut to bring them into line with the maximum £5 bet on betting machines allowed in casinos.
Meanwhile, Paddy Power Betfair is expected to issue a positive set of first-half results this week, though it might be a different picture at Rank, licking its wounds from the failure to join the merger mania.
But it’s a safe bet there will be plenty more to come.